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HDB resale market: On the path to recovery
Prices continue to fall but less sharply than in 2014, latest data shows.
by Adam Rahman
Following widespread electoral dissatisfaction over rapidly rising HDBresale prices, the government implemented cooling measures to cool down prices. TheHDB Resale Price Index (RPI) began itsdecline in Q2 2013 (refer to Chart 1), andcontinued to reflect reduced transactionvolumes and prices each quarter since.
In the most recent numbers providedby HDB, the effect of the cooling measurescontinues to be felt. This year, pricescontinued to fall one percent quarter-onquarter(Q-o-Q) in Q1 2015, followed by amore gentle 0.4 percent dip in Q2 2015.However, this decline is less sharp than2014s, when prices fell nearly threepercent over the same period. Thissuggests that prices are stabilizing, andsome market watchers are predicting aneventual plateauing of HDB prices.
Ong Kah Seng, Director of RSTResearch, recalls that the initial monthsfollowing the implementation of coolingmeasures such as limiting loans bycapping the Mortgage Servicing Ratio at30 percent buyers were unable to buyproperty beyond their lowered financiallimits. This led to buyers either bidingtheir time for better offers to come along,or lowering their expectations and goingfor smaller, cheaper units. The fall intransaction volumes led prices to correctdownwards to their current point.
Sizes of flats matter
While prices did dip across the board,we saw different degrees of declineamongst the different flat types. In general,smaller flats saw larger price percentagedeclines compared to larger units over thesame period of time. Prices of four-roomflats fell 5.3 percent year-on-year, whilelarger five-room flats saw a smaller declineof 4.3 percent over the same period (seeChart 2). This is likely due to HDBupgraders (of which four-room flat ownersare a larger proportion) selling their units,increasing market supply and furthersuppressing prices.
Owners of five-roomor executive flats, in comparison, haveless incentive to upgrade as they wouldbe giving up their more spacious units atdepressed market prices and still belooking at hefty premiums for condo unitsat equivalent sizes.
Transactions set to stage acomeback in a buyersmarket
With the slowdown in resale pricesstabilizing, analysts are predicting thatmomentum will pick up in the latter halfof 2015. Already, in H1 2015, 7.2 percentmore resale units were sold compared tothe same period last year, with levelsexpected to remain buoyant movingforward. This suggests that buyers have noticedprices coming down sufficientlyto fit into their budgets, and have begunto return to the market.
This is an extremely price-sensitivesegment however. Slight differencesbetween the asking price of the ownerselling the flat, and the valuation price,which is determined by an independentthird party, could determine whether thetransaction goes through or not.
Buyers are also savvy enough torealize that a lot of condominiums wouldbe completing construction and ownerswould need to offload their current HDBflats before they can move into their newunits. They would therefore hold out andnegotiate for even lower prices, as theyare in a stronger bargaining position.
Ong mentions that this is a commonoccurrence. We have arrived at a pointwhere buyers feel that prices havebecome more affordable and acceptable,so they are more willing to make apurchase. Looking at existing conditions,improved demand comes mainly fromopportunistic buyers who will takeadvantage of the situation and notaccede to high asking prices by sellers.In some cases, eradication ofcash-over-valuation (COV) also helps toenhance liquidity, and they end up withmore spare cash for renovations,especially so for older flats which requirea major overhaul.
Eugene Lim, Key Executive Officer ofERA Realty Network, agrees. As far asHDB prices are concerned, prices havestopped increasing, spurring buyersconfidence in the resale market. In fact,for the months of April and May, wenoticed that the number of transactedunits are one of the highest in recenttimes. If these conditions were tosustain, Lim predicts that the market willsee between 18,000 and 20,000 unitsbeing transacted in 2015, an improvementfrom the 17,000 flats in 2014 thatexchanged hands.
A further price correction isinevitable
While there is general optimism thatthe volume of transactions will pick up,prices are not expected to rise. HDBresale prices are expected to remain flatfor the remainder of 2015, with thechance of a one to three percentcontinued decline, bringing the total dropin resale flat prices to between three andfive percent for 2015.
Mohamed Ismail, CEO of PropNexRealty, suggests that property prices willcontinue to moderate. Looking at publichousing for the second half of the year,we can anticipate prices will drop by 2.0
to 2.5 percent. Although we are seeingmore buying activity in recent months, animmediate rebound is not likely tohappen, even moving ahead into 2016.The reason for this, Ismail suggests, isdue to demand and supply. With thevolume of BTO flats that will be completed in 2015 and 2016, there will be asubstantial number of second-timerswho will have to sell their current flatswithin six months, adding to the currentsupply of resale flats already available.
ASK THE AGENTS
Advice on resale HDB flats
What are some of the things that people commonly overlook when they buy a resale HDB flat?If you have a question for our network of agents, email to: News-and-Views@PropertyGuru.com.sg
This article was first published in the print version The PropertyGuru News & Views.Download PDF of full print issues or read more stories now!
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